Interview with Michael Brissenden, AM, ABC Radio

The tax discussion paper will be released this morning by the Treasurer Joe Hockey and he joins me now. Treasurer, welcome to the programme.

TREASURER:

Good to be with you, Michael.

MICHAEL BRISSENDEN:

Now, why do we need another review? We’ve had plenty in the past, including, of course, the Henry Review just a few years ago and nothing seems to come of them.

TREASURER:

Well, the world economy and the Australian economy is changing very rapidly and the fundamentals of our taxation system were designed in the 1950s for a 1950s economy. We need to have a tax system that can cope with the 2050s, which is not that far away. But our world is changing rapidly. The digital economy is constantly changing the way consumers behave, the way they shop, the way they buy goods and where they buy them from and, of course, our tax system is currently just a patchwork quilt of different taxes trying to come up with new sources of revenue to pay for new spending.

MICHAEL BRISSENDEN:

Okay. Now, the paper focuses a lot on corporate and personal taxes. How do you fund lowering those taxes? The last Budget has shown that you can’t seem to do it by cutting spending, so perhaps a GST raise is the only way of doing it?

TREASURER:

Well, everyone will immediately try and reach out for a new solution on a new tax. Ultimately, what we’ve got to do is look at the changing nature of the economy, and I’ll give you an example: we are seeing now about 12 companies pay around a quarter of all company tax in Australia – just 12 companies. As we know, companies are often engaged in economic activity offshore and we are seeing significant leakage from multinational corporations, not only searching for places where they may not pay tax, but, quite incredibly, other countries are cutting company tax rates to try and get them to relocate to their jurisdictions. Now, what that means is we have a certain amount – a significant amount – of our revenue at risk because of the new global economy and as you and I and all of your listeners know, many people are increasingly buying goods and services over the internet, and they can be located in another country. The question is how we charge GST for the services provided by people who are located offshore, because our local producers – our local retailers – are at a competitive disadvantage.

MICHAEL BRISSENDEN:

Nevertheless, you need to find some way of replacing that money that you’re losing by cutting the corporate taxes, though, don’t you?

TREASURER:

Well, you could also try and find ways, which we are working on with other countries, to try and plug some of those international holes, but one of the things that we can’t stop is competition. So, you can ensure that people that are avoiding tax are eventually caught, but what you can’t do is prevent competition and we are facing increasing tax competition from our neighbours in Asia and, obviously, there are different ways, different concessions here in Australia, that skew economic activity. So, if you look at what we’ve just released in the Intergenerational Report, the clear message is: we’re going to have fewer workers in Australia supporting more and more people who are not working, how do we get more people into the workforce, what disincentives in the tax system do we need to remove, but also, importantly, how can we ensure that the tax paid is paid on a broader basis so that no one part of the community is doing all the heavy lifting for everyone else?

MICHAEL BRISSENDEN:

Ok, well let’s go to some of those tax concessions, because the paper also says that they need to be well justified. Now, why not change the super tax concessions, for instance, which cost $32 billion a year? I mean, as a comparison we only spend $20 billion a year on Medicare.

TREASURER:

Superannuation is a very good example where governments come along and constantly tinker at the edges and sometimes make substantial changes when people have spent all of their working life contributing to superannuation and expect that the system will be consistent for their retirement. So…

MICHAEL BRISSENDEN:

Sure, but those concessions are overwhelmingly enjoyed by the more wealthy Australians, though, aren’t they?

TREASURER:

Yes – well I think everyone gets a concession of one form or another on tax on superannuation…

MICHAEL BRISSENDEN:

But wealthy people get bigger concessions [inaudible]

TREASURER:

And that’s right, they contribute more, and, quite obviously, if you change the rules now, it’s got to be on a prospective basis. But, again, if you look at superannuation in isolation, you’re failing to take into account the interaction with the age pension and the fact that there are a lot of people in Australia who have a part pension because they’re also receiving money from their accrued superannuation…

MICHAEL BRISSENDEN:

Ok, [inaudible]

TREASURER:

… you’ve also got the interaction with the aged care system. So, it’s always more complicated than we think. That’s why we are having this conversation to draw out all these complexities in the system that slow down our economy and will make it harder and harder for a government of any political persuasion to pay for the bills as they come in the future.

MICHAEL BRISSENDEN:

So, are these things in the mix in the conversation – the super tax and negative gearing?

TREASURER:

We haven’t done what our predecessors did and start ruling things in and out, because if you’re having a fair dinkum conversation with the Australian people, everyone should be fully informed about what the pressures are on the tax system, everyone should be fully informed about the success or otherwise of individual taxes and everyone should be able to express an opinion. And, if you go to the website bettertax.gov.au, people will be able to see all the information there and be able to express a view.

MICHAEL BRISSENDEN:

So, negative gearing is in the mix then?

TREASURER:

Well, again, it’s so tempting to get into this rule in, rule out situation...

MICHAEL BRISSENDEN:

Okay.

TREASURER:

…we’re putting the whole tax system down, all the concessions down and asking Australians for their opinion about what could be done better and also, importantly, don’t forget about tax administration; how can we get rid of the red tape – that burden that particularly falls on small business – how can we reduce it or even get rid of it and create more incentives for people to be able to get on and earn a buck and employ more Australians.

MICHAEL BRISSENDEN:

You could forgive people for being a bit cynical about this, though, couldn’t you, because these things have been in the conversation, I guess, for a long time. We’ve been talking about negative gearing, particularly, for a very long time. So, why is it so hard to go after those things?

TREASURER:

Well, it’s not hard if you’ve got broad community consensus and we saw that over the weekend in New South Wales. Reform is hard, but, you know, if we’re going to maintain the status quo we have to change, because the world is changing on us, it’s moving quite rapidly. The things that we traditionally thought would be there in 30, 40 years’ time are not going to be there. So, if we want to maintain our quality of life, if we want to maintain our standard of living, we’re going to have to change and what we’ve got to do is make sure that we have a tax system that delivers taxes that are lower, that are simpler and that are fairer and, therefore, if we do that and we’re also able to compete with some of the most aggressive tax practices that are legitimate amongst our trading partners, then our economy will grow and we’ll get the revenue we need to pay the bills.

MICHAEL BRISSENDEN:

Ok. Is it time to take the lead then on the GST and not wait for a consensus from all the states, because clearly that’s something that you’ll never get?

TREASURER:

That’s the point, Michael. You know, we have to convince every part of the community to support this sort of reform or at least get a majority of the community, and then that also means you need to get a majority of the Parliament, including the Senate. So, if the Labor Party automatically starts ruling things in and ruling things out, well there’s very little conversation to be had because, ultimately, you’re going to need to have some level of bipartisan support for significant reform.

MICHAEL BRISSENDEN:

[Inaudible] but why not go it alone? Why not just push the issue?

TREASURER:

We will prosecute a case for change in various areas of taxation, but ultimately, we’ve got to get the right policy outcome and the best place to start is with the best policy outcome and, again, that involves a conversation with the nation.